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Item 1A. Risk Factors

2024-02-29 compared with 2023-03-01 · 71 added, 76 removed, 306 unchanged (32% of the section changed)

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Operating Risks

Disruptions in the production and delivery of new vehicles and parts from manufacturers due to the lack of availability of parts and key components from suppliers, such as semiconductor chips and other component parts and supplies, could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Disruptions in the production and delivery of new vehicles and parts from manufacturers due to the lack of availability of parts and key components from suppliers could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Historically, we have generated a significant portion of our revenue through new vehicle sales, and new vehicle sales also tend to lead to sales of higher-margin products and services, such as F&I products and vehicle-related parts and service.

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We rely exclusively on the various vehicle manufacturers for our new vehicle inventory and maintenance and replacement parts inventory.

In turn, our vehicle manufacturers rely on certain third-party suppliers to manufacture and deliver certain parts and key components for their vehicles.

As a result, our profitability is dependent to a great extent on various aspects of vehicle manufacturers’ operations and timely delivery of new vehicles and parts.

Certain vehicle manufacturers have suspended or slowed production of new vehicles, parts and other supplies due to significant shortages of semiconductor chips, parts and other key components.

These production delays have negatively impacted our new vehicle and parts inventory levels, with parts shortages in turn adversely impacting our service and collision repair business.

The shortage of new vehicle inventory has increased market demand for, and pricing of, used vehicles raising both revenue and gross profit per used vehicle retailed, but also has increased our costs of acquiring used vehicle inventory.

Any prolonged severe shortages or unavailability of new vehicle inventory could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

In addition, the abatement of the global supply chain issues relating to semiconductor chips, parts and other key components may lead to an increase in the supply of new vehicles, which could have a material adverse effect on the levels of profitability on both new and used vehicles.

We cannot predict with any certainty how long the automotive retail industry will continue to be subject to these shortages or when normalized production will resume at the se manufacturers.

The novel coronavirus disease (COVID-19) global pandemic had, and may continue to have, a material impact on our business, financial condition and results of operations.

The COVID-19 global pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.

Consumer spending may also be negatively impacted by general macroeconomic conditions, consumer confidence, supply chain disruptions, macroeconomic inflation and efforts to curtail inflation, which may negatively impact revenues.

Our profitability is, to a great extent, dependent on various aspects of vehicle manufacturers' operations.

As a result of significant shortages of semiconductor chips, parts and key components, certain vehicle manufacturers have ceased or slowed production of new vehicles.

We cannot predict with any certainty how long these production slowdowns in the automotive retail industry will persist and when normalized production will resume at these manufacturers.

This disruption in our supply network has negatively impacted, and will continue to impact, our ability to maintain a desirable mix of popular new vehicles and parts that consumers demand at the time and in the volumes desired, all of which would adversely impact our revenues.

While the supply disruption has reduced our new vehicle inventory supply, it has positively impacted our gross profit per vehicle retailed.

As new vehicle inventories return to historic levels we would expect our new vehicle gross profit to return to pre-COVID levels.

The extent of the impact of the COVID-19 global pandemic on our business will depend on numerous evolving factors that we cannot accurately predict or assess.

Even after the COVID-19 global pandemic has subsided, we may continue to experience adverse impacts to our business as a result of an economic recession or depression that has occurred or may occur in the future.

These adverse impacts could include the negative impact it has on global and regional economies and economic activity;

financial and capital markets, foreign currency exchange rates, inflation, commodity prices and interest rates;

changes in consumer behavior and household debt levels, as well as its short and longer-term impact on the levels of consumer confidence.

Property loss or other uninsured liabilities could have a material adverse impact on our results of operations.

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In certain instances, our insurance may not fully cover a loss depending on the applicable deductible or the magnitude and nature of the claim.

Additionally, changes in the cost or availability of insurance in the future could substantially increase our costs to maintain our

current level of coverage or could cause us to reduce our insurance coverage and increase our self-insured risks.

Additionally, changes in the cost or availability of insurance in the future could substantially increase our costs to maintain our current level of coverage or could cause us to reduce our insurance coverage and increase our self-insured risks.

To the extent we incur significant additional costs for insurance, suffer losses that are not covered by in-force insurance or suffer losses for which we are self-insured, our financial condition, results of operations and cash flows could be materially adversely impacted.

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Accordingly, we believe that our future growth depends in part on our ability to manage expansion, control costs in our operations and acquire and effectively integrate acquired dealerships into our organization.

Specifically, with the consummation of the LHM acquisition, we have experienced significantly more sales, and have more assets and employees than we did prior to the transaction.

The integration process will require us to expend significant capital and significantly expand the scope of our operations and financial systems.

For example, with the recent consummation of the Koons acquisition, we will experience significantly more sales, and have more assets and employees than we did prior to the transaction.

The integration processes require us to expend significant capital and significantly expand the scope of our operations and financial systems.

Integration also requires support or other actions by third-parties such as vendors, suppliers, and licensing agencies and the untimely or inadequate responses from such third-parties can delay or otherwise negatively impact the integration process.

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If our operating subsidiaries are unable to generate and distribute sufficient cash to us to service our indebtedness and fund our ongoing operations, our financial condition may be materially adversely affected.

Our inability to execute a substantial portion of our business strategy, including our five-year strategic plan, could have an adverse effect on our business, results of operations, financial condition and cash flows .

Our inability to execute a substantial portion of our business strategy, including our five-year strategic plan, could adversely affect our business, results of operations, financial condition and cash flows.

We seek to execute on our strategic plan using a variety of growth efforts including, driving same-store revenue growth, acquiring additional revenue through strategic acquisitions and adding incremental revenue through our Clicklane platform.

Many of the factors that impact our ability to execute our strategic plan, such as the advancement of certain technologies, general economic conditions and legal and regulatory obstacles are beyond our control.

Our inability to execute a substantial portion of our business strategy, including our mission to grow and transform our business, could have an adverse effect on our business, results of operations, financial condition and cash flows .

Our inability to execute a substantial portion of our business strategy, could adversely affect our business, results of operations, financial condition and cash flows.

We seek to execute on our strategic plan using a variety of growth efforts including, driving same-store revenue growth and acquiring additional revenue through strategic acquisitions.

Many of the factors that impact our ability to execute our strategic vision, such as the advancement of certain technologies, general economic conditions and legal and regulatory obstacles are beyond our control.

Consumers are increasingly shopping for new and used vehicles, automotive repair and maintenance service and other automotive products and services online and through mobile applications, including through third-party online and mobile sales platforms, with which we compete, that are designed to generate consumer sales that are sold to automotive dealers.

We have invested and will continue to invest in our Clicklane platform and other online applications in furtherance of our strategic plan.

We have invested and will continue to invest in our omni-channel and other online applications in furtherance of our strategic vision.

We face increased competition for market share from other automotive retailers and other sales platforms that have also invested in digital channels.

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Changes to the business mix or declining cash flows in a dealership increase the risk of impairment.

However, we cannot accurately predict the amount and timing of any impairment charges at this time;

During the year ended December 31, 2023, we recognized asset impairment charges of $117.2 million associated with manufacturer franchise rights recorded at certain dealerships and goodwill associated with certain asset disposal groups.

We cannot accurately predict the amount and timing of any additional impairment charges at this time;

however, any such impairment charge could have an adverse effect on our results of operations and stockholders' equity.

See Note 10 "Goodwill and Intangible Franchise Rights" of the notes to consolidated financial statements for more information.

See Note 10 "Goodwill and Intangible Franchise Rights" of the notes to the consolidated financial statements for more information.

The loss of key personnel and limited management and personnel resources could adversely affect our business.

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Changes in interest rates can also significantly impact new and used vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact interest rates have on customers’ borrowing capacity and disposable income.

In an inflationary environment, depending on automotive industry

and other economic conditions, we may be unable to raise prices to keep up with the rate of inflation, which would reduce our profit margins.

In an inflationary environment, depending on automotive industry and other economic conditions, we may be unable to raise prices to keep up with the rate of inflation, which would reduce our profit margins.

We have experienced, and continue to experience, increases in the prices of labor, fuel and other costs of providing service.

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Although we seek to limit our dependence on any one vehicle manufacturer, there can be no assurance that the brand mix allocated and delivered to our dealerships by the manufacturers will be appropriate or sufficiently diverse, to protect us from a significant decline in the desirability of vehicles manufactured by a particular manufacturer or disruptions in a manufacturer's ability to produce vehicles.

For the year ended December 31, 2022, manufacturers representing 5% or more of our revenues

from new vehicle sales were as follows:

For the year ended December 31, 2023, manufacturers representing 5% or more of our revenues from new vehicle sales were as follows:

Manufacturer (Vehicle Brands):

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Mercedes-Benz USA, LLC ( Mercedes-Benz and Sprinter )

Hyundai Motor North America ( Hyundai and Genesis )

General Motors Company ( Chevrolet, Buick and GMC)

Nissan North America, Inc.

( Nissan and Infiniti )

Hyundai Motor North America ( Hyundai and Genesis )

Similar to automotive retailers, vehicle manufacturers may be affected by the long-term U.S.

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(v) changes in their respective management;

(vi) disruptions in the production and delivery of vehicles and parts due to natural disasters or other reasons (for example, shortages in the supply of semiconductor chips may continue to adversely impact the number of vehicles which manufacturers are able to produce);

(vi) disruptions in the production and delivery of vehicles and parts due to natural disasters, pandemics or other reasons;

and (vii) issues with respect to labor relations.

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Vehicle manufacturers that produce vehicles outside of the U.S.

are subject to additional risks including changes in quotas, tariffs or duties, fluctuations in foreign currency exchange rates, regulations governing imports and the costs related thereto, and foreign governmental regulations.

are subject to additional risks including changes in quotas, tariffs or

duties, fluctuations in foreign currency exchange rates, regulations governing imports and the costs related thereto, and foreign governmental regulations.

Adverse conditions that materially affect a vehicle manufacturer and its ability to profitably design, market, produce or distribute desirable new vehicles could in turn materially adversely affect our ability to (i) sell vehicles produced by that manufacturer, (ii) obtain or finance our new vehicle inventories, (iii) access or benefit from manufacturer financial assistance programs, (iv) collect in full or on a timely basis any amounts due therefrom, and/or (v) obtain other goods and services provided by the impacted manufacturer.

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Furthermore, the automotive manufacturing supply chain spans the globe.

As such, supply chain disruptions resulting from natural disasters, adverse weather and other events may affect the flow of vehicle and parts inventories to us or our manufacturing partners.

For example, in early 2020, the outbreak of a novel coronavirus in Wuhan, China led to quarantines of a significant number of cities across the United States and other countries and widespread disruptions to travel and economic activity.

Until such time as the coronavirus is fully contained and the supply chain shortages of semiconductor chips, parts and other key components are addressed, we may continue to experience disruptions in the supply of vehicle and parts inventories, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

As such, supply chain disruptions resulting from natural disasters, adverse weather, pandemics, labor stoppages and other events may affect the flow of vehicle and parts inventories to us or our manufacturing partners.

If we experience disruptions in the supply of vehicle and parts inventories, such disruptions could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

Substantial competition in automobile sales and services may have a material adverse effect on our results of operations.

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Customers are using the internet to shop, and compare prices, for new and used vehicles, automotive repair and maintenance services, finance and insurance products and other automotive products.

If we are unable to effectively use the internet to attract customers to our own online channels, such as our Clicklane platform, and mobile applications, and, in turn, to our stores, our business, financial condition, results of operations and cash flows could be materially adversely affected.

If we are unable to effectively use the internet to attract customers to our own online channels, and mobile applications, and, in turn, to our stores, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Additionally, the growing use of social media by consumers increases the speed and extent that information and opinions can be shared, and negative posts or comments on social media about us or any of our stores could damage our reputation and brand names, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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However, many states have recently passed or introduced legislation to permit direct to consumer sales of electric vehicles by certain companies, such as Tesla and Rivian, without the requirements of establishing a dealer network.

If the state franchise laws are repealed, weakened or amended to permit vehicle manufacturers to sell vehicles (whether electric or not) directly to consumers, they may be able to have a competitive advantage over the traditional dealers, which could have a material adverse effect on our sales in those states, which in turn, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

traditional dealers, which could have a material adverse effect on our sales in those states, which in turn, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are dependent upon our relationships with the manufacturers of vehicles that we sell and are subject to restrictions imposed by, and significant influence from, these vehicle manufacturers.

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In addition, certain manufacturers use a dealership’s manufacturer-determined customer satisfaction index ("CSI") score as a factor governing participation in incentive programs.

To the extent we do not meet minimum score requirements, our future

payments may be materially reduced or we may be precluded from receiving certain incentives, which could materially adversely affect our business, financial condition, results of operations and cash flows.

To the extent we do not meet minimum score requirements, our future payments may be materially reduced or we may be precluded from receiving certain incentives, which could materially adversely affect our business, financial condition, results of operations and cash flows.

Manufacturers also typically establish facilities and minimum capital requirements for dealerships on a case-by-case basis.

In certain circumstances, including as a condition to obtaining consent to a proposed acquisition, a manufacturer may require us to remodel, upgrade or move our facilities, and capitalize the subject dealership at levels we would not otherwise choose to fund, causing us to divert our financial resources away from uses that management believes may be of higher long-term value to us.

In certain circumstances, including as a condition to obtaining consent to a proposed acquisition and qualifying for certain financial incentives, a manufacturer may require us to remodel, upgrade or move our facilities, and capitalize the subject dealership at levels we would not otherwise choose to fund, causing us to divert our financial resources away from uses that management believes may be of higher long-term value to us.

Delays in obtaining, or failing to obtain, manufacturer consent, would impede our ability to execute acquisitions that we believe would integrate well with our overall strategy and limit our ability to expand our business.

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Triggers of these clauses are often based upon actions by our stockholders and are generally outside of our control.

Restrictions on any unapproved changes of ownership or management may adversely impact our value, as they may prevent or deter prospective acquirers from gaining control of us.

Restrictions on any unapproved changes of ownership or management may adversely impact our value, as they may prevent or deter prospective acquirers from gaining

control of us.

In addition, actions taken by a manufacturer to exploit its bargaining position in negotiating the terms of renewals of franchise agreements or otherwise could also have a material adverse effect on our revenues and profitability.

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While most major vehicle manufacturers have announced plans to electrify some or all of their new vehicle offerings, the eventual timing of widespread availability of electric, battery powered and hybrid gas/electric vehicles and driverless vehicles is uncertain due to regulatory requirements, additional technological requirements, and uncertain consumer acceptance of these vehicles.

service business, our finance and insurance business, including our TCA business, and the role of franchised dealers, any of which could materially adversely affect our business, financial condition, results of operations and cash flows.

We expect to continue to sell electric, battery powered and hybrid gas/electric vehicles through our dealerships, however, the effect of these vehicles on the automotive retail business is uncertain and could include changes in the level of the new and used vehicle sales, the price of new and used vehicles and the levels of service required for such vehicles and the profitability of our parts and service business, our finance and insurance business, including our TCA business, and the role of franchised dealers, any of which could materially adversely affect our business, financial condition, results of operations and cash flows.

Risks Related to Our Indebtedness and Financial Matters

Our outstanding indebtedness, ability to incur additional debt and the provisions in the agreements governing our debt, and certain other agreements, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

As of December 31, 2022, we had total debt of $3.33 billion and total floor plan notes payable, net of $51.0 million.

As of December 31, 2023, we had total debt of $3.23 billion and total floor plan notes payable, net of $1.79 billion.

We have the ability to incur substantial additional debt in the future to finance, among other things, acquisitions, working capital and capital expenditures, and new and used vehicle inventory, as well as to refinance new and used vehicle inventory, subject in each case to the restrictions contained in our debt instruments and other agreements existing at the time such indebtedness is incurred.

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In addition to our ability to incur additional debt in the future, there are operating and financial restrictions and covenants, such as leverage covenants, in certain of our debt and mortgage agreements, including the agreement governing our 2023 Senior Credit Facility and our mortgage agreements and related mortgage guarantees, as well as certain other agreements to which we are a party that may adversely affect our ability to finance our future operations or capital needs or to pursue certain business activities.

These limit, among other things, our ability to incur certain additional debt, create certain liens or other encumbrances and make certain payments (including dividends and repurchases of our common stock and for investments).

Certain of these agreements also require us to maintain compliance with certain financial ratios.

These limit, among other things, our ability to incur certain additional debt, create certain liens or other

encumbrances and make certain payments (including dividends and repurchases of our common stock and for investments).

Certain of these agreements also require us to maintain compliance with certain financial ratios, including, but not limited to, our adjusted net leverage ratio.

Our failure to comply with any of these covenants in the future could constitute a default under the relevant agreement, which could, depending on the relevant agreement, (i) entitle the creditors under such agreement to terminate our ability to borrow under the relevant agreement and accelerate our obligations to repay outstanding borrowings;

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If market conditions cause subprime lenders to tighten credit standards, or if interest rates increase, the ability to obtain financing from subprime lenders for these consumers to purchase vehicles could become limited, resulting in a decline in our vehicle sales, which in turn, could have a material adverse effect on our financial condition and results of operations.

We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements or otherwise adversely affect the accuracy, reliability or timeliness of our financial statements.

We may identify a material weakness in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements or otherwise adversely affect the accuracy, reliability or timeliness of our financial statements.

As described under Item 9A.

"Controls and Procedures" below, we have concluded that a material weakness in our internal control over financial reporting existed as of December 31, 2022 and, accordingly, internal control over financial reporting and our disclosure controls and procedures were not effective as of such date.

"Controls and Procedures" below, we previously concluded that a material weakness in our internal control over financial reporting existed as of December 31, 2022 and, accordingly, internal control over financial reporting and our disclosure controls and procedures were not effective as of such date.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

As a result of management’s evaluation, management identified the material weakness as a result of deficiencies in information technology general controls ("ITGCs") at LHM and TCA, businesses that we acquired in December 2021.

Management has developed its remediation plan and is in the process of implementing it.

Until the remediation plan is fully implemented, tested and deemed effective, we cannot provide assurance that our actions will adequately remediate the material weakness or that additional material weaknesses in our internal controls will not be identified in the future.

Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud.

The occurrence of, or failure to remediate, this material weakness and any future material weaknesses in our internal control over financial reporting may adversely affect the accuracy and reliability and timeliness of our financial statements and have other consequences that could materially and adversely affect our business.

Management identified the material weakness as a result of deficiencies in information technology general controls ("ITGCs") at LHM and TCA, businesses that we acquired in December 2021.

During 2023, we completed the remediation measures related to the material weakness and we have concluded that our internal control over financial reporting is effective as of December 31, 2023.

Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly.

Failure to maintain effective internal control over financial reporting may adversely affect the accuracy and reliability of our financial statements and have other consequences that may materially and adversely affect our business.

Risks Related to Legal and Regulatory Matters

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Many states also limit the circumstances in which an automobile manufacturer may sell vehicles directly to consumers.

Some state laws allow dealers to file protests or petitions or allow them to attempt to comply with the

manufacturer’s criteria within a notice period to avoid the termination or non-renewal.

Some state laws allow dealers to file protests or petitions or allow them to attempt to comply with the manufacturer’s criteria within a notice period to avoid the termination or non-renewal.

Our framework agreements with certain manufacturers contain provisions that, among other things, attempt to limit the protections available to dealers under these laws, and, though unsuccessful to date, manufacturers’ ongoing lobbying efforts may lead to the repeal or revision of these laws.

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We rely on information systems at our dealerships in all aspects of our sales and service efforts, as well in the preparation of our consolidated financial and operating data.

All of our dealerships currently operate on a common dealer management system ("DMS").

Our business could be significantly disrupted if (i) the DMS fails to integrate with other third-party information systems, customer relations management tools or other software, or to the extent that any of these systems become unavailable to us or fail to perform as designed for an extended period of time or (ii) our relationship with our DMS provider or any other third-party provider deteriorates.

Additionally, any disruption to access and connectivity of our information systems due to natural disasters, power loss or other reasons could disrupt our business operations, impact sales and results of operations, expose us to customer or third-party claims, or result in adverse publicity.

All of our dealerships currently operate on two dealer management systems ("DMS").

Additionally, in the ordinary course of business, we and our partners receive significant PII about our customers in order to complete the sale or service of a vehicle and related products.

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The regulatory environment surrounding information security and privacy is increasingly demanding, with numerous state and federal regulations, as well as payment card industry and other vendor standards, governing the collection and maintenance of PII from consumers and other individuals.

We believe the automotive dealership industry is a particular target of identity thieves, as there are numerous opportunities for a data security breach, including cyber-security breaches, burglary, lost or misplaced data, scams, or misappropriation of data by employees, vendors or unaffiliated third parties.

Cyber incidents can result from human error or intentional (or deliberate) attacks or unintentional events by insiders (e.g., employees) or third parties, including cybercriminals, competitors, nation-states and “hacktivists,” among others.

Cyber incidents can include, for example, phishing, credential harvesting or use of stolen access credentials, unauthorized access to systems, networks or devices (for example, through hacking activity), structured query language attacks, infection from or spread of malware, ransomware, computer viruses or other malicious software code, corruption of data, exfiltration of data to malicious sites, the dark web or other locations or threat actors, the use of fraudulent or fake websites, and other attacks (including, but not limited to, denial-of-service attacks on websites), which shut down, disable, slow, impair or otherwise disrupt operations, business processes, technology, connectivity or website or internet access, functionality or performance.

In addition to intentional cyber incidents, unintentional cyber incidents can occur (for example, the inadvertent release of confidential or non-public personal information).

Changes to our business, processes, systems, or technology, if not implemented properly, can increase our vulnerability to cyber incidents.

In addition, we believe the automotive dealership industry is a particular target of identity thieves, as there are numerous opportunities for a data security breach, including cybersecurity breaches, burglary, lost or misplaced data, malware, ransomware, computer viruses or other malicious software code, corruption of data, exfiltration of data to malicious sites, the dark web or other locations or threat actors, or misappropriation of data by employees, vendors or unaffiliated third parties.

Because of the increasing number and sophistication of cyber-attacks, and despite the security measures we have in place and any additional measures we may implement or adopt in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, scams, burglary, human errors, acts of vandalism and/or other events.

Alleged or actual data security breaches can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose us to negative publicity, individual claims or consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

While we have experienced cyber incidents in the past, and may experience additional incidents in the future, we are not aware of any incident having a material adverse effect on our business, results of operations or financial condition to date.

However, there can be no assurance that we will not experience future cyber incidents that may be material.

Although we believe we have systems and processes in place to protect against risks associated with cyber incidents in the future, depending on the nature of an incident, these protections may not be fully sufficient.

In addition, because techniques used in cybersecurity attacks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

An incident may not be detected until well after it occurs and the severity and potential impact may not be fully known for a substantial period of time after it has been discovered.

Any such alleged or actual incident can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose us to negative publicity, individual claims or consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our dealership operations and facilities are subject to extensive governmental laws and regulations.

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The automotive retail industry, including our facilities and operations, is subject to a wide range of federal, state, and local laws and regulations, such as those relating to motor vehicle sales, retail installment sales, leasing, finance and insurance, marketing, licensing, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, vehicle emissions and fuel economy, and health and safety.

In addition, with respect to employment practices, we are subject to various laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws.

In addition, with respect to employment practices, we are subject to various

laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws.

The violation of the laws or regulations to which we are subject could result in administrative, civil, or criminal sanctions against us, which may include a cease and desist order against the subject operations or even revocation or suspension of our license to operate the subject business, as well as significant fines and penalties.

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Our failure to comply with the consent order may result in the imposition of significant fines and/or penalties, which could have a material adverse effect on our results of operations.

In January 2024, the FTC published the Combatting Auto Retail Scams Final Rule (the “CARS Rule”), which prohibits a broad range of current accepted industry sales and marketing practices and imposes significant new dealer disclosure obligations and record-keeping requirements throughout the vehicle-buying process.

The FTC has stayed the CARS Rule’s original effective date of July 30, 2024 pending the resolution of a judicial challenge to the CARS Rule.

Compliance with the CARS Rule, if it becomes effective, would be burdensome and cause us to incur increased costs.

A failure to comply with the CARS Rule would expose us to potential significant damages, penalties and adverse publicity, which could have a material adverse effect on our business, operations and financial results.

Continued pressure from the CFPB, FTC, and other federal agencies could lead to significant changes in the manner that dealers are compensated for arranging customer financing and vehicle protection products, and while it is difficult to predict how any such changes might impact us, any adverse changes could have a material adverse impact on our finance and insurance business and results of operations.

Furthermore, we expect that new laws and regulations, particularly at the federal level, in other areas may be enacted, which could also materially adversely impact our business.

On August 3, 2022, we received a Civil Investigative Demand (“CID”) from the FTC requesting information and documents concerning the Company’s corporate structure and operation of six of its dealerships.

We responded to the CID by producing information and documents for the period August 1, 2019 to April 24, 2023.

On February 8, 2024, the FTC staff counsel sent to us a proposed consent order and draft complaint, alleging that the Company and three of our dealerships had violated Section 5 of the Federal Trade Commission Act (“FTC Act”) and certain provisions of the Equal Credit Opportunity Act (“ECOA”) in connection with the sale of add-on products (e.g., vehicle service contracts, maintenance plans, etc.), and advising that it would recommend the filing of an enforcement action if the Company did not settle the FTC’s claims.

The Company disputes the FTC’s allegations that it violated the FTC Act and the ECOA, and is currently involved in discussions with the FTC staff regarding the matter.

There can be no assurance that negotiations between us and the FTC for a favorable settlement will be successful, or that we will succeed in any litigation as a result of the investigation.

At this time, we are unable to reasonably predict the possible outcome of this matter, or provide a reasonably possible range of loss, if any, as a result of the investigation.

If the FTC files a suit against us based on these allegations, whether meritorious or not, it may adversely affect our ability to attract customers, result in the loss of existing customers, harm our reputation and cause us to incur defense costs and other expenses.

Environmental laws and regulations govern, among other things, discharges into the air and water, storage of petroleum substances and chemicals, the handling and disposal of solid and hazardous wastes, investigation and remediation of contamination.

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For example, vehicle manufacturers are subject to government-mandated fuel economy and greenhouse gas emission standards, which continue to change and become more stringent over time.

Failure of a manufacturer

to develop passenger vehicles and light trucks that meet these and other government standards could subject the manufacturer to substantial penalties, increase the cost of vehicles sold to us, and adversely affect our ability to market and sell vehicles to meet consumer needs and desires, which could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Failure of a manufacturer to develop passenger vehicles and light trucks that meet these and other government standards could subject the manufacturer to substantial penalties, increase the cost of vehicles sold to us, and adversely affect our ability to market and sell vehicles to meet consumer needs and desires, which could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Our TCA business is subject to a wide range of federal, state, and local laws and regulations, some of which we may not have previously been subject.

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We are involved and expect to continue to be involved in numerous legal proceedings arising out of the conduct of our business, including litigation with customers, employment-related lawsuits, class actions, purported class actions, and actions brought by governmental authorities.

We do not believe that the ultimate resolution of any known matters will have a material adverse effect on our business, reputation, financial condition, results of operations, cash flows or prospects.

We do not believe that the ultimate resolution of any known matters will have a material

adverse effect on our business, reputation, financial condition, results of operations, cash flows or prospects.

However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Our inability to access necessary or desirable funding, or to enter into certain related transactions, at times and at costs deemed appropriate by us, could have a negative impact on our liquidity and our ability to conduct our operations.

Any of these developments could also reduce the ability or willingness of the financial institutions that have extended credit commitments to

us, or that have entered into hedge or similar transactions with us, to fulfill their obligations to us, which also could have a material adverse effect on our liquidity, our ability to conduct our operations and our prospects.

Any of these developments could also reduce the ability or willingness of the financial institutions that have extended credit commitments to us, or that have entered into hedge or similar transactions with us, to fulfill their obligations to us, which also could have a material adverse effect on our liquidity, our ability to conduct our operations and our prospects.

We are subject to risks associated with imported product restrictions or limitations, foreign trade and currency valuations.

5 unchanged sentences

dollar against foreign currencies in the future may result in an increase in costs to us and in the retail price of such vehicles or parts, which could discourage consumers from purchasing such vehicles and adversely impact our revenues and profitability.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors